By Noreen Burke
Investing.com — Investors will be looking ahead to the U.S. jobs report for July, which is expected to shed more light on the strength of the economic rebound. Forecasts for the report fall into a broad range, but most analysts expect the bounce back in hiring to have slowed significantly last month. Markets will also be watching Congress, which remains deadlocked over the next round of economic relief after a critical lifeline for millions of unemployed Americans expired. It’s half-time for the second quarter earnings season after stunning results for Big Tech last week but faltering macroeconomic data and concerns over the course of the pandemic are weighing on Treasury yields. Meanwhile the Bank of England is expected to stay the course at its meeting on Thursday, with investors awaiting any hints on the possible future direction of monetary policy. Here’s what you need to know to start your week.
U.S. jobs data
The Labor Department’s nonfarm payrolls report for July, due on Friday is expected to show that 1.65 million jobs were added last month, slowing from 4.8 million in June. The report covers the period through mid-July, before containment measures were reintroduced in some states in the second half of the month.
Analysts at ING cautioned that while they expect to see an increase given employment was still rising in the second half of June and the first half of July, they are more cautious than the market and expect a figure closer to 750,000 versus the current consensus.
The jobs report will come a day after the weekly report on initial jobless claims. Last week’s figures showed a second straight weekly increase in initial jobless claims, together with the biggest increase in continuing claims since May, which could foreshadow a negative nonfarm payrolls number for August.
Congress at an impasse on fresh stimulus
Investors will be keeping their eyes on Washington where Congress is still deadlocked over the next round of economic relief from a pandemic that has killed more than 150,000 Americans and triggered the sharpest economic collapse since the Great Depression.
On Friday tens of millions of Americans lost a $600 per week federal unemployment supplement after the White House and Congress failed to reach an agreement to extend the payments.
Congressional Democrats want to see the weekly payments extended into next year as part of a broader package, but Republicans have said the $600 payments are an incentive to stay home rather than return to work. Their proposal would provide a much lower weekly payment of $200 until states create a system to provide a 70% wage replacement for laid-off workers.
Half-time for Q2 earnings
It’s halfway through second quarter earnings season and there have been more beats than misses so far. Of the approximately 250-plus companies that have so far released numbers in the U.S. and Europe 80% of S&P 500 companies beat estimates, versus 65% of European firms, Refinitiv IBES data shows.
While industrial names such as General Motors (NYSE:GM) and Caterpillar (NYSE:CAT) delivered big positive surprises, the season also cemented U.S. tech’s hegemony; Amazon (NASDAQ:AMZN) reported its biggest profit ever, Facebook (NASDAQ:FB) smashed estimates and Apple (NASDAQ:AAPL) iPhone sales surpassed expectations.
Earnings may be less of a driver this week with most of the Big Tech names in the rear view mirror but there are still some big names reporting, including Disney (NYSE:DIS), Berkshire Hathaway (NYSE:BRKa), Tyson Foods (NYSE:TSN), Clorox (NYSE:CLX) and CVS (NYSE:CVS) to name just a few.
Falling Treasury yields
Data last Thursday showing that the U.S. economy contracted at a record 32.9% annualized rate in the second quarter, sent three, five-and 20-year yields to record lows. The entire yield curve is close to falling below 1%.
A fresh trigger for further falls could be July’s unemployment figures.
Last week the Federal Reserve tied the economic recovery to resolution of the health crisis, saying “the path of the economy will depend significantly on the course of the virus”.
Fed policymakers repeated a pledge to use their “full range of tools” to support the economy and keep interest rates near zero for as long as it takes to recover from the epidemic.
Bank of England to keep rates on hold
The BoE will shed more light Thursday on how fast it expects the economy to rebound from the financial damage wrought by the pandemic, but is unlikely to add to the 100 billion pounds ($131 billion) of stimulus it announced in June.
Governor Andrew Bailey is likely to be asked about the BoE’s latest thinking on negative interest rates — it’s among the central banks holding out against negative interest rates and analysts think it won’t adjust its borrowing costs until end-2021.
The economic recovery looks likely to be prolonged and the UK still needs to reach a trade deal with the EU before the Brexit transition period ends on Dec. 31.
The BOE stance may be prudent. With the countdown towards the Brexit deadline well underway, policymakers may want to keep some options in reserve.
–Reuters contributed to this report